Why aren’t these people in jail?

Oh, right. They’re running the government.

When financial titan Goldman Sachs joined some of its Wall Street rivals in late 2005 in secretly packaging a new breed of offshore securities, it gave prospective investors little hint that many of the deals were so risky that they could end up losing hundreds of millions of dollars on them.

McClatchy has obtained previously undisclosed documents that provide a closer look at the shadowy $1.3 trillion market since 2002 for complex offshore deals, which Chicago financial consultant and frequent Goldman critic Janet Tavakoli said at times met “every definition of a Ponzi scheme.”

The documents include the offering circulars for 40 of Goldman’s estimated 148 deals in the Cayman Islands over a seven-year period, including a dozen of its more exotic transactions tied to mortgages and consumer loans that it marketed in 2006 and 2007, at the crest of the booming market for subprime mortgages to marginally qualified borrowers.

In some of these transactions, investors not only bought shaky securities backed by residential mortgages, but also took on the role of insurers by agreeing to pay Goldman and others massive sums if risky home loans nose-dived in value — as Goldman was effectively betting they would.

 

Sharks

No, really. 

In the fine print of the form homeowners fill out to apply for Obama’s program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.

This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

That’s what happened to Evangelina Flores, the owner of a modest 902 square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.

“The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December,” said George Bosch, the legal administrator for the law firm of Edward Lopez and Rick Gaxiola, which is handling Flores’ case for free.

Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.

Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.

“They arrived real demanding, saying that they were the owners,” recalled Flores. “I have high blood pressure, and I felt awful.”

Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days.

I couldn’t make this up if I tried. McClatchy does the yeoman’s work in the article. It’s a must read. There’s more, and this is an interesting wrinkle:

The Aug. 25 cover letter from Central Mortgage Company, the servicer that collects Flores’ mortgage payments, offered Flores a trial modification with this comforting language:

“If you do not qualify for a loan modification, we will work with you to explore other options available to help you keep your home or ease your transition into a new home.”

CMC is owned by Arkansas regional Arvest Bank, itself controlled by Jim Walton, the youngest son of Wal-Mart founder Sam Walton.

I guess it wasn’t enough to destroy much of  the household manufacturing in this country, now the Waltons are throwing people out of their homes.

A glance past CMC’s hopeful promise finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders.

The document warns that foreclosure “may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law.”

This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn’t qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner.

It appears that the banks, after taking our money, are now writing these mortgages off. That’s the only way I can wrap my head around rejecting repayment of a $352,000 mortgage and allowing the house to be sold at auction for $78,000. It’s a tax write off.  There’s a handy-dandy chart at the article that shows how many of these troubled mortgages have actually been converted to permanent loans. It’s shocking.

 (H/T Joe)

Updated: Go. Listen. I’m with Johnny too.

 

Nads

What myiq2xu said. 

In the comments he notes that Obama should have graciously declined to answer the question. But what do you expect from someone who wrote two autobiographies before the age of forty? It’s all about him.

Or what Lambert said.

“The biggest burden on me right now is that economic growth has happened, but job growth has not happened,” Obama told Winfrey on the ABC special.

It’s not a burden on you, asshole. It’s not about you!

Oh, but never mind, mustn’t let that “burden” mar the holidays. Did you get your invitation?  Me neither.

Welcoming friends and relatives during the holiday season can be stressful for even the most patient and experienced hosts.

What if your guest list included more than 50,000 people over the course of three weeks?

This month, President Obama and first lady Michelle Obama become the entertainers-in-chief, hosting nearly 30 parties during their first holiday season at the White House.

Poor babies, they must be so stressed!

More than 50,000 people have received invitations to attend one of the 17 holiday parties and 11 open houses at the White House that started last week and will continue right up until the Obamas leave for vacation at the end of the month. 

Jeez, doesn’t he have a job to do?  Sure he does!

This isn’t just throwing open the White House doors and putting out some drinks and appetizers. The Obamas will attend each party, greet guests in a receiving line, pose for photos at most of the events and even mingle among the partygoers at a select few.

Can you say “tone deaf?” Seriously, how much of our tax money is going to entertain these 50,000 guests?

Meanwhile, in the real world, at MY company we haven’t had a company party in two years. Not to mention three layoffs in the last 10 months, no raises, and insurance is going up again at the first of the year, but hey, at least I still have a job.

 

Is it just me?

Or is this the first year that retailers have actually used the words “Black Friday” in their advertisements for their Day(s) After Thanksgiving sales? It is everywhere on t.v., in print, and online. No mention of the “spirit of giving.” No mention of finding that “perfect gift.”   It’s as though they all got the same memo. The ads are all about unabashed greed and consumerism.  I find it disconcerting, and yet, at the same time, brutally honest.

 

Elizabeth Warren: “It’s socialism for the rich”

A must watch:

What exactly is going on with the economy? Stocks are up and big bonuses are back, but while they’re throwing parties on Wall Street, there’s pain on Main Street. One out of every six workers is unemployed or underemployed, according to government statistics – the highest figure since the Great Depression.

This week NOW gets answers and insight from Harvard professor Elizabeth Warren, who’s been heading up the congressional panel overseeing how the bailout money is being spent. NOW Senior Correspondent Maria Hinojosa talks with Warren about how we got to this point, and where we go from here.

Elizabeth Warren takes us clearly through the entire financial meltdown, from bailouts to bonuses, foreclosures to credit card thievery, to the need for solid and transparent regulation that will not destroy capitalism, but make it work again for the majority, whom she refers to as “the real economy”, not just a few at the top.

H/T and a second to Lambert: Elizabeth Warren for President!

 

CIT Stiffs Taxpayers

What the hell?

Nov. 2 (Bloomberg) — CIT Group Inc.’s decision to seek court protection probably will keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.

CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.

“It doesn’t look too good for the government preferred or any preferred holders,” Brian Charles, a debt analyst at New York-based brokerage RW Pressprich & Co., said yesterday. “It’s unlikely common shareholders realize any value.”

 

There shouldn’t have been “bail” – there should have been jail!

First you have to read Matt Taibbi’s article. Read all of it. It begins:

On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — “like buying 1.7 million lottery tickets,” according to one financial analyst.

But what’s even crazier is that the bet paid.

At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.

The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…

Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn’t help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. “I would hope that you’re looking at this,” Dodd said. “This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors.”

Cox nodded sternly and promised, yes, he would look into it. What actually happened is another matter. Although the SEC issued more than 50 subpoenas to Wall Street firms, it has yet to identify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in a matter of days. “I’ve seen the SEC send agents overseas in a simple insider-trading case to investigate profits of maybe $2,000,” says Brent Baker, a former senior counsel for the commission. “But they did nothing to stop this.”

The SEC’s halfhearted oversight didn’t go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers

Then read this one (the first in a series) by McClatchy: How Goldman secretly bet on the U.S. housing crash

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

[...]

To piece together Goldman’s role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm’s activities.

McClatchy’s inquiry found that Goldman Sachs: 

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they’d misled borrowers or exaggerated applicants’ incomes to justify making hefty loans. 
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify. 
• Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni. 

The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board’s blessing, AIG later used $12.9 billion in taxpayers’ dollars to pay off every penny it owed Goldman.

And then this one.

Toy said she concluded that the reviews were mostly “for appearances,” because the Wall Street firms planned to repackage “bogus” loans swiftly and sell them as bonds, passing any future liabilities to the buyers. The investment banks and mortgage lenders each seemed to be playing “hot potato,” trying to pass the risks “before they got burned,” she said.

“There was nobody involved in this who didn’t know what was going on, no matter what they say,” she said. “We all knew.”

[...]

John Talbott, a former Goldman investment banker and the author of a new book, “The 88 Biggest Lies on Wall Street,” said “it wasn’t a mistake” when illegal immigrants got home mortgages.

The lenders, he said, “just wanted somebody, anybody to sign a note” so they could sell it to Wall Street, where ratings agencies that were paid hefty fees by the investment banks bestowed triple-A grades or their equivalent on most subprime bonds.

“It’s not just unethical,” Talbott said of the chain of profiting subprime players extending from real estate appraisers to Wall Street. “It’s totally criminal.”

 

Where’s my pitchfork?

“The test of our progress is not whether we add more to the abundance of those who have much it is whether we provide enough for those who have little.”  ~ Franklin Delano Roosevelt

Do ALL roads lead to Goldman Sachs? Not quite, but it sure feels that way. They get the gold, we get the crumbs.

Robert Scheer: Zooming In on the Year’s Biggest Hoax

Why wasn’t there a CNN stakeout at the homes of former Goldman-execs-turned-treasury-chiefs Robert Rubin and Henry Paulson aimed at finding out how they feel about the almost $7 billion profit that Goldman Sachs made in the last two quarters in the wake of the government’s bailout of the firm?

One commenter adds:

Hmmm … let’s see why the Wolfe wouldn’t say anything.  CNN … part of large media conglomerate which is beholden to … Wall Street!

Nah…he’s probably checking his stocks during commercial breaks.

Lambert links to probably the most depressing article I’ve read lately.  This doesn’t sound like an economic revival to me.

Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years.

That could add up to a “new normal” of higher joblessness and lower standards of living for many Americans, some economists are suggesting.

gqmartinez notes that a former McCain advisor is now consulting with Democrats and the White House. From the article:

“This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future,” said Mark Zandi, chief economist and co-founder of Moody’s Economy.com.

“The collective psyche has changed as a result of what we’ve been through. And we’re going to be different as a result,” said Zandi, who formerly advised Sen. John McCain, R-Ariz., and now is consulted by Democrats in the administration and in Congress,

And no, it isn’t going to get better any time soon.

“Many factors are pushing against a quick recovery,” said Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute. “Things will come back. But it’s going to take a long time. I think we will likely see elevated unemployment at least until 2014.“

At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

So, batten down the hatches. There will be no FDR-type public works. There will be no safety net for anyone not deemed “to big to fail.” Our hapless Democrats can’t seem to get off the dime, so brother, can ya spare one?

“It’s a new normal that U.S. growth is going to be anemic on average for years. Right now, the prospect is bleak for anything other than a particularly high unemployment rate and a weak jobs-creating machine,” said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment will dip below 7 percent anytime soon.

Many economists consider a jobless rate of 4 to 5 percent as reflecting a “full employment” economy, one in which nearly everyone who wants a job has one. After the 2001 recession the rate climbed to 5.8 percent in 2002 and peaked at 6.3 percent in 2003 before easing back to 4.6 percent for 2006 and 2007.

Will unemployment ever get back to such levels?

“I wouldn’t say never. But I do think it’s going to be a long time,” said Bruce Bartlett, a former Treasury Department economist and the author of the book “The New American Economy: The Failure of Reaganomics and a New Way Forward.”

“The linkage between growth in the economy and growth in jobs is not what it was. I don’t know if it’s permanently broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect,” said Bartlett.

Back to Scheer:

It should not come as a surprise to Timothy Geithner, who, as The Wall Street Journal reported last week, talks to the honchos of Goldman more often than to members of Congress ostensibly in charge of banking legislation. Nor will it shock the lobbyists for Wall Street—augmented, as The Nation reported last week, by the pro-Goldman efforts of former Democratic congressman and faux populist Dick Gephardt—that the rich will emerge richer from this deep recession in which so many Americans have lost everything. The die is cast: People working in finance grabbed two-thirds of the growth in GDP, with the rest of us scrambling for the other third.

But hey, the fat cats on Wall Street are sitting pretty, so what’s the problem?

Is it time for a revolution now?

 

“the ho-hum business of lending”

This:

Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.

So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza.

“All of this is facilitated by the Federal Reserve and the government, who really want financial institutions to get back to lending,” said Gary Richardson, a research fellow at the National Bureau of Economic Research. “But we have just shown them that they can have the most frightening things happen to them, and we will throw trillions of dollars to protect them. I have big concerns about that.”

Is directly related to this:

According to the Nevada chapter of the Associated General Contractors of America, the number of construction jobs in Washoe fell from 23,400 in 2006 to 16,100 in 2008 — a 31 percent drop. In comparison, overall employment fell by 5.7 percent in the same period.

“Construction accounted for 67 percent of the total job loss in the county, even though the industry only accounted for 12 percent of total employment,” said Buzz Harris, assistant executive director of AGC Nevada. “We’re talking about significant losses in one of the higher-paying industries in the county.”

The negative trend continued this year, with 35 percent of the construction work force in Reno-Sparks — about 5,900 workers — losing their jobs within the last 12 months. The rate was the highest among 337 metro areas tracked by the AGC nationwide.

The loss is also reflected in the smaller pie that construction now represents in overall employment. As of August this year, construction accounted for nearly 6 percent of all workers in Washoe County, down from 8 percent during the same point last year, according to the Nevada Department of Employment, Training and Rehabilitation.

Making things worse is the uncertainty surrounding an industry recovery, particularly in terms of funding for projects. The banking crisis has made financing for construction projects almost impossible to acquire, according to Harris and others in the industry.

This is what happens when you hand people money with no strings attached. The bailouts were supposed to loosen credit to fund projects that would put people back to work. That’s the story we were given last fall.  We had to bail them out now! now! now! or we’d all be standing in breadlines.  Those of us who asked for some guarantees that the money would be used to actually create jobs were marginalized and derided as Cassandras. Yet, since then we’ve seen unemployment rise and Wall Street profits soar.

Wall Street is playing fast and loose with our money, we are getting less than nothing from it, and Congress is diddling. And the Obama administration? The hits just keep on coming.

Greenwald:

Apparently, the U.S. government didn’t have enough Goldman Sachs executives in key financial and regulatory positions, so the following happened this week:

A Goldman Sachs executive has been named the first chief operating officer of the Securities and Exchange Commission’s enforcement division.

The market watchdog says Adam Storch, vice president in Goldman Sachs’ Business Intelligence Group, is assuming the new position of managing executive of the SEC division.

The move comes as the SEC revamps its enforcement efforts following the agency’s failure to uncover Bernard Madoff’s massive fraud scheme for nearly two decades despite numerous red flags.

A Goldman executive as COO of the SEC’s enforcement division.  This is all consistent with the observation of Desmond Lachman — previously chief emerging market strategist at Salomon Smith Barney and IMF deputy director — regarding “Goldman Sachs’s seeming lock on high-level U.S. Treasury jobs,” which he cited as but one of the many “parallels between U.S. policymaking and what we see in emerging markets.”

Sigh.

 

I’m a grinch

You read that right.

We’ve got millions of people out of work. Millions of people without health insurance (or next to useless high deductible policies), infrastructure is crumbling, and yeah, we’re still engaged in two wars.  For many with jobs, pay has not kept up with inflation. For most, there is no cost of living adjustment from year to year to help ameliorate the rising cost of gas, utilities, insurance, children outgrowing their clothes, etc.  For myself and my co-workers, we’ve faced: no bonuses, furloughs amounting to 10% pay cut for three months, layoffs, insurance premium increases, no yearly raise, merit raises and promotions frozen, and many other “cost saving” measures. The only shining light in all of this has been the fact that gas has dropped from $4 a gallon to about $2.65 in our area.

The one group that does have someone watching their backs to help them weather the tough times are Social Security recipients. For the first time since 1975, the Social Security administration has taken a look at things and declared that seniors do not need a COLA this year. And immediately the wails began and the politicians clutched their pearls in fear.

Except that no one is suggesting taking anything AWAY from seniors. There are some cold hard facts that need attention.

From AP:

The Labor Department reported Thursday that consumer prices had declined 2.1 percent since the third quarter of 2008. The cost-of-living adjustment for Social Security, or COLA, is based on the change in consumer prices from the third quarter of one year to the next.

Social Security recipients shouldn’t get a raise next year because their purchasing power has already increased with falling consumer prices, said the Center on Budget and Policy Priorities, a liberal-leaning think tank.

“Since the purpose of COLAs is to preserve beneficiaries’ purchasing power, the decline in overall prices means that beneficiaries do not need a COLA in January 2010,” Kathy Ruffing, a senior policy analyst at the center, wrote in a report this week.

Over the past 12 months, gasoline prices have fallen 29.7 percent and overall energy costs have decreased 21.6 percent, the Labor Department said Thursday.

Ruffing noted that government forecasters don’t expect consumer prices to return to 2008 levels until 2011.

There’s more. Seniors are the group with the smallest percentage of its members in poverty. Which group is the highest? Children.

The poverty rate for U.S. residents 65 and older is below the rates for other age groups and has been for much of the past two decades. In 2008, the rate for seniors was 9.7 percent, according to the Census Bureau. That same year it was 11.7 percent for 18-to-64-year-olds and 19 percent for minors.

But minors don’t vote.

They note that Social Security payments increased by 5.8 percent this year, the biggest rise since 1982, largely because of a spike in energy prices in 2008.

[...]

“The real purchasing power of their benefits is actually higher today than it was last year,” said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.

“Nevertheless, there will be a big political price to pay if no COLA is granted,” Biggs said.

Experts on the left and the right agree: no need for COLA.

So, what does our Democratic President do? Jumps in to needlessly rescue the seniors and to rob Peter to pay Paul. And the Dems in Congress are all too willing to go along. Must not look like we’re robbing Grandma.

The White House put the cost of the payments at $13 billion. Obama said he would not allow the money to come out of the Social Security trust funds, which would further erode the finances of the retirement program. Social Security already is projected to pay out more in benefits than it collects in taxes in each of the next two years.

However, Obama did not offer any alternatives to finance the payments. A senior administration official said Obama was open to borrowing the money, increasing the federal budget deficit. The official, who requested anonymity, was not authorized to speak on the record.

Do we really need to go down this road? Some seniors think we do not.

“At my age, I’ve got a nice bedroom, I have clothes, I have anything I want, I got a walker. What else do I need?” said Marie Arrasate, 83, who ran a restaurant and candy shop with her husband in Washingtonville, N.Y., and now lives with her daughter in Pembroke Pines, Fla.

Are there some seniors that could use the extra $250? Probably. But so could a lot of families, especially those ones with single parents (mostly women) who are trying to take care of growing children who need clothes, food, health care, school supplies, shampoo, soap, laundry detergent, etc and are struggling to get by with no support from their children’s other parent. They work full-time and barely get by, if that. I know lots of them.

But OMG! The seniors! Who’ll take care of grandma? She didn’t get her COLA this year.

Call me a grinch. It’s okay.